Attitudes to AIFMD mellowing, finds Multifonds' survey
Attitudes towards the Alternative Investment Fund Managers Directive (AIFMD) appear to be mellowing, according to a survey by Multifonds, the fund software company.
Fears about the costs of appointing a depository have broadly subsided with industry participants expecting to pay less than 2.5 basis points for the service. In 2013, 77% of those surveyed predicted depository costs would range between five and 25 basis points.
Global custodians had initially told fund managers that depository costs would add another 30 to 40 basis points to their operational overheads when the AIFMD was first introduced. They further warned firms transacting in exotic markets or esoteric instruments that their costs would be even higher.
The Alternative Investment Management Association (AIMA), the hedge fund industry body, issued a statement in 2011 saying depository reforms would amount to an additional $6 billion in costs for the hedge fund industry. However, this was dismissed as alarmist. This was evidenced in a more recent survey by AIMA, KPMG and the Managed Funds Association (MFA) which said the total spend by hedge funds on all regulations had been $3 billion so far.
Some universal banks are even offering depository services for as little as zero basis points assuming the manager purchases it as part of a bundled service offering that encapsulates prime brokerage, fund administration and possibly third party collateral management.
Many fund managers are now recognising the distribution benefits AIFMD affords, according to Multifonds. Eighty-two per-cent of respondents said that non-EU managers would likely set up European operations to take advantage of AIFMD. Likewise, fewer market participants expressed doubt that there will be exodus from Europe as a result of the high costs. Fifty-three per-cent said EU managers would leave Europe to set up offshore structures, as opposed to 77% in 2013.
A survey of fund managers in 2013 by BNY Mellon Alternative Investment Services (AIS) found 54% of respondents expected to see an increase in the amount of capital invested in alternative funds due to AIFMD. Fund managers cited their ability to distribute their products more widely as being a key driver for this growth. One of the biggest draws of AIFMD compliance is the prospect of an AIFMD passport. Some optimists point out an AIFMD brand could emerge and potentially rival UCITS. Seventy-two per-cent of respondents to the Multifonds’ survey said this would help them gather assets The passport is likely to benefit fund domiciles such as Luxembourg and Ireland, as firms grow out their onshore businesses.
“As a regulation that came in response to the financial crisis in an attempt to regulate hedge funds, AIFMD seems finally to be emerging as a regulation that will bring some long term benefits to the industry. In previous years, the unclear cost of complying with AIFMD presented a real concern – the presumed high cost levels would be the tipping point for the Directive’s ultimate success or failure. With depositary costs in particular now looking to be far lower than expected, this year’s survey shows that those concerns have subsided and the outlook is more positive for AIFMD,” said Keith Hale, executive vice president for client and business development at Multifonds.
However, challenges do remain. Sixty-six per-cent of respondents said regulatory reporting through Annex IV is their most pressing concern. Just 33% of fund managers have provisions in place to handle the regulatory reporting requirements, it added. “Fund managers must figure out how to marry their multiple systems together and then aggregate, store and report the resulting data,” said Hale.